Asked by Sen. Sherrod Brown, Democrat of Ohio, how the Fed is responding to reports that HSBC helped clients avoid taxes, Yellen said the Justice Department has enforcement responsibilities of tax laws and hasn’t yet provided any information yet that U.S. banking laws have been broken.

“If they [Justice] thought it appropriate, we would expect them to reach out to us,” Yellen said.

Shouldn’t the Fed reach out to Justice based on news reports, Brown asks.

Warren presses Yellen about two speeches Scott Alvarez, the Fed’s general counsel, gave last year that were critical of Dodd-Frank.

Is the Fed staff on the same page as the Fed board of governors in regards to bank regulation? Warren asked. Yellen says the Fed is not seeking to change Dodd-Frank.

The Fed staff should not be picking and choosing which parts of Dodd-Frank to enforce, Warren added.

Alvarez gave a speech last November saying the Fed was considering changes to the Volcker rule.

Warren said that Alvarez also gave a speech criticizing the derivatives provision of Dodd-Frank, which was later erased by Congress in a spending measure late last year over Warren’s strong objections.

Sen. Pat Toomey, a Republican from Pennsylvania, says monetary policy is “unbelievably accommodative.” Flatly says he disagrees with Sen. Schumer, who just finished saying Fed should be cautious. The time for higher rates is “long overdue,” Toomey said.

Yellen says she does not want to “chain” Fed policy to any rule whatsoever. She says the Fed needs to consider an array of variables, even when not in emergency conditions. She says it’s useful to consult the Taylor rule, however.

Asked about Dallas Fed President Fisher’s proposal to change the structure, Yellen points out that it’s Congress that set that structure, and she says it has worked well. In particular, there’s special expertise at the New York Fed, which uniquely gets a vote at every meeting.

Most interesting to us was the fact that Yellen stressed in her testimony that removing “patient” does not mean they will raise rates in a couple of meetings. It would simply mean that the time has come when a change could be warranted. This is consistent with our thinking that the Fed will remove “patient” in March and stress that the decision to hike (whether they go in June, September or later) is now purely data dependent (as the FOMC wants it to be).

Eric Green, head of U.S. rates and economic research at TD Securities:

Key takeaway: No major shift in Fed thinking which itself may be considered as less dovish relative to the last minutes. Yellen had ample room to sound more dovish. Her speech is balanced, cautious, and optimistic all of which suggest that the core view has not changed.

Brown talks about how sometimes, a “candid conversation in private” could be better to set Fed policy. In the Senate, most Republicans are lining up in favor of the audit-the-Fed legislation and most Democrats are against.

And what the heck does patient mean? Here’s what Yellen herself said in December:

So I did say that the statement that the Committee can be patient should be interpreted as meaning that it is unlikely to begin the normalization process for at least the next couple of meetings. Now, that doesn’t point to any preset or predetermined time at which normalization is—will begin. There are a range of views on the Committee, and it will be dependent on how incoming data bear on the progress the economy is making.

Let’s backtrack a second — the focus on the word “patience.” Here’s the last statement from the Federal Open Market Committee, bolding mine.

Based on its current assessment, the Committee judges that it can be patient in beginning to normalize the stance of monetary policy. However, if incoming information indicates faster progress toward the Committee’s employment and inflation objectives than the Committee now expects, then increases in the target range for the federal funds rate are likely to occur sooner than currently anticipated. Conversely, if progress proves slower than expected, then increases in the target range are likely to occur later than currently anticipated.

Everyone will be focused on what Yellen has to say about being “patient,” but I think equally interesting will be the Monetary Policy Report’s (MPR) characterization of inflation and inflation expectations. The January FOMC Minutes indicated that officials believe the recent weakness in core inflation is being driven by a handful of components, so other measures like the median CPI and the trimmed mean may be better indicators of underlying inflation pressures. As I noted last week, the trimmed mean and the “sticky price” CPI have indeed shown far more stability than the core CPI or core PCE. In any case, I will be curious to see to what extent the MPR goes into detail about the softness in core inflation in November and December, and how much it highlights these alternative measures of inflation.

The big question this morning is the tone of Yellen’s comments – no one is expecting her to flat out say, we’ll have a rate hike in June or in September. But she may take a slightly more hawkish tone than what the FOMC minutes suggested. Here’s an article explaining why.